The widespread use of digital payments may seem to make transactions more convenient for consumers. However, results from previous research have shown that such digital payments can increase consumers’ spending on unhealthy food. “Why Do Cashless Payments Increase Unhealthy Consumption? The Decision-Risk Inattention Hypothesis,” a newly published article in the Journal of the Association for Consumer Research, explains this phenomenon by showing how changes in bodily responses to digital payments influence consumers’ responses.

Frictionless Payments Eliminate the Pain to Pay

Authors Joowon Park, Clarence Lee, and Manoj Thomas propose that cashMoney in physical form such as banknotes and coins. More and no-cash payments elicit different levels of negative arousal when making shopping decisions. “Most people experience a spontaneous negative emotional response to the loss of wealth, particularly when such loss is concrete and vivid,” the authors note. In contrast, when a person swipes a card or uses mobile paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More, it isn’t easy to visualize the moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More changing hands. The payment occurs at a later dateThe year in which a medal or coin was minted. On a banknote, the date is usually the year in which the issuance of that banknote - not its printing or entering into circulation - was formally authorised. More, which presumably does not entail a physical handover of money. “Because such transactions are not concrete,” the authors write, “cashless payments are less likely to elicit the negative arousal that is appraised as the ‘pain of paying.'”

Since arousal has been shown to direct people’s attention to risk factors in the environment, the authors suggest that the lower level of arousal caused by non-cash payments can direct consumers’ attention away from decision risks. This makes shoppers less attentive, for example, to risks relating to food (e.g., the risk that the product might have adverse effects on health in the long run). Authors refer to this process as “decision risk inattention” caused by non-cash payments.

To test this idea, the authors invited participants to a lab for simulated grocery shopping where some participants were told to imagine making cash payments. The researchers told others to imagine making non-cash payments. During the shopping simulation, participants wore a device on their hands that measured changes in their physical arousal level.

The authors found that participants thinking of making non-cash payments experienced lower arousal than those thinking of making cash payments. The higher arousal from cash payments made participants pay attention to the health risks associated with the grocery items and consequently less likely to add unhealthy items such as cookies and candies to their shopping baskets.

On the other hand, the lower arousal from cashless payments made participants pay less attention to the health risks, and thus they were more likely to purchase unhealthy items. That is digital payments made participants pay less attention to decision risks. The changes in arousal did not affect the purchase decision of healthy food items such as apples and salads, the purchase of which does not accompany such decision risks.

Shoppers Are Willing to Spend More with Digital Payments

In a similar study, participants were told to imagine a dessert bar opening up in major cities in the U.S. They were told that the company is interested in understanding the popularity of several desserts. Participants viewed pictures and descriptions of several desserts and indicated how much they would be willing to pay for each one.

Similar to the earlier result, participants who were thinking of making digital payments were willing to pay more for the desserts than those thinking of making cash payments. Furthermore, this gap was more prominent for participants with higher levels of education, who are presumably better aware of the health risks from the consumption of desserts.

The authors found that inattention to such risks caused by digital payments increased the amount that participants with more education were willing to pay for the desserts. However, the different payment methods did not affect how much participants with less education were willing to pay for. The authors found that the level of attention paid to health risks did not matter for these participants, possibly because they were not well aware of such health risks.

What Are the Impacts on Amazon’s Cashless Stores?

One of the takeaways from the research is that the authors see the potential for their hypothesis to be tested in other situations involving different types of decision risks. “Compared to brick-and-mortar shoppers, would shoppers in Amazon’s cashless stores be more willing to try radically new products because of lower risk sensitivity? If casinos start giving out chips on mobile apps, instead of physical chips, would gamblers be willing to bet their money on riskier gambles?”. This arguably explains Amazon’s efforts to lobby against legislation that would ban stores from refusing cash.

In 2010, the Journal of Consumer Research published an article analyzing the influence of different payment instruments on the proportion of impulsive purchases, and particularly unhealthy food.

In 2017, Martina Eschelbach from the Deutsche Bundesbank demonstrated that cash has a disciplinary effect and protects consumers from unnecessary spending in a paper aptly entitled “Pay cash, buy less trash? Evidence from German payment diary data”. She concludes that ‘the probability of an unplanned purchase subsequently being considered unnecessary is around 10% lower when paid in cash.’

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